Adobe 2008 Annual Report Download - page 85

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85
during fiscal 2008 and fiscal 2007, respectively, was related to historical use of licensing rights which was expensed as cost
of sales and the residual of $16.8 million for fiscal 2008 was expensed as general and administrative costs. In connection with
these licensing arrangements, we have the ability to acquire additional rights to use technology in the future. See Note 15 for
further information regarding our contractual commitments.
In general, acquired rights to use technology are amortized over their estimated useful lives of 5 to 15 years.
Certain prior year amounts have been reclassified to conform to current year presentation in the consolidated balance
sheets. Specifically, there was a reclassification associated with certain technology licensing arrangements totaling $35.0
million, net from purchased intangibles of which $28.7 million and $4.7 million were reclassified to acquired rights to use
technology and long-term prepaid royalties, respectively. The remaining amount was reclassified to short-term prepaid
royalties.
Included in investments are our indirect investments through our limited partnership interest in Adobe Ventures, which
is consolidated in accordance with FASB Interpretation No. 46R, a revision to FASB Interpretation No. 46, “Consolidation of
Variable Interest Entities.” The partnership is controlled by Granite Ventures, an independent venture capital firm and sole
general partner of Adobe Ventures. Adobe Ventures carries its investments in equity securities at estimated fair value and
investment gains and losses are included in our consolidated statements of income. The investments held by Adobe Ventures
at November 28, 2008 and November 30, 2007 are not publicly traded and, therefore, there is no established market for these
securities. In order to determine the fair value of these investments, we use the most recent round of financing involving new
non-strategic investors or estimates of current market value made by Granite Ventures. It is our policy to evaluate the fair
value of these investments held by Adobe Ventures, as well as our direct investments, on a regular basis. This evaluation
includes, but is not limited to, reviewing each company’ s cash position, financing needs, earnings and revenue outlook,
operational performance, management and ownership changes and competition. In the case of privately-held companies, this
evaluation is based on information that we request from these companies. This information is not subject to the same
disclosure regulations as U.S. publicly traded companies and as such, the basis for these evaluations is subject to the timing
and the accuracy of the data received from these companies. See Note 17 for further information regarding Adobe Ventures.
Also included in investments are our direct investments in privately-held companies accounted for based on the cost
method which are assessed for other-than-temporary impairment in value.
The increase in security and other deposits relates primarily to the purchase of real property in Massachusetts. We
entered into a Purchase and Sale Agreement, effective May 12, 2008, for the acquisition of real property located in Waltham,
Massachusetts. We will purchase the property subject to completion of construction of an office building shell and core,
parking structure and site improvements. The purchase price for the property will be $44.7 million. We made an initial
deposit of $7.0 million to be held in escrow until closing and then applied to the purchase price. Closing is expected to occur
in May 2009 and the remaining balance is due at such time.
Other assets include the fair value, at inception, of the residual value guarantee associated with our leases on the
buildings we occupy as part of our corporate headquarters, in accordance with FIN 45. The lease agreements for our
corporate headquarters provide for residual value guarantees. Under FIN 45, the fair value of a residual value guarantee in
lease agreements entered into after December 31, 2002, must be recognized as a liability on our consolidated balance sheet.
As such, we recognized $5.2 million and $3.0 million in liabilities, related to the extended East and West Towers and
Almaden Tower leases, respectively. These liabilities are recorded in other long-term liabilities with the offsetting entry
recorded as prepaid rent in other assets. The balance will be amortized to the income statement over the life of the leases. As
of November 28, 2008, the unamortized portion of the fair value of the residual value guarantees remaining in other long-
term liabilities and prepaid rent was $2.6 million.